September 8, 2006

in search of HP Way 2.0

Thank you John Furrier and Robert Scoble for noting that HP has long had a great culture and tradition of innovation, and 150,000 dedicated employees who are just as perplexed and disgusted about the BoD scandal as anyone. I really appreciated your comments, and they helped crystallize an idea for me: what HP needs now is the HP Way 2.0.

The HP Way 1.0 is not dead, but it is certainly under constant siege these days. Here's a good balanced article on the HP Way from the local Palo Alto Weekly dated April 10, 2002, when we were in the middle of the Compaq merger proxy fight (now that was a horrible period at HP). Looking back, I would say that both Carly Fiorina and Walter Hewlett were right about the merger. Consolidation for scale turned out to be a correct strategy for winning in the increasingly cutthroat PC and x86 server businesses, and HP has done very well in those areas. However, the cost of being a leader in PCs is increased exposure to an unforgiving, slow growth, low margin business that in turn demands a ruthlessly lean and efficient operating model. Perpetual understaffing, tight budgets, burnout working conditions, and layoffs all seem to come with that territory. It is a lot harder to maintain innovation, trust, and respect for individuals in that environment, and so these cornerstones of the HP Way have been slowly chipped away.

In addition to the Compaq team, HP has also brought in a lot of new exec talent from places like Dell, WalMart, and EDS. Guess what, they didn't have the HP Way in those places. So it's no big surprise that they aren't playing the game by the old rules. They are trying to change the game entirely. You can certainly debate whether their strategies are correct, but in the meantime, chip, chip chip at the old ways of doing things. In many ways, HP Way 1.0 is no longer relevant to the reality of our industry.

HP has been on a roll this year with improved revenue, profit, and stock price. There are a lot of reasons to be hopeful that the new cost structure and operating model will enable more investment in innovation and contribution to customers, which will in turn lead to exciting new products and renewed employee passion, which in turn will turbocharge the business. This kind of 'virtuous circle' is what the leaders of HP have been trying to achieve for the last 7 years, and if we can pull it off then maybe we will see the rise of HP Way 2.0. You know, sometimes it takes a crisis to precipitate a catharsis -- and maybe our current board crisis can be turned into a vehicle for purposeful renewal of the HP culture and our presence in the world. It would be hard and painful thing to do, and it would take incredible leadership from Mark Hurd and his team and from every person in HP, but I could see it, I really could.

Am I crazy? Inspired? Deluded? Maybe, but I think it's a great question: What would a truly great HP look like, that would be deserving of the term HP Way 2.0?

Gene, I wish you good luck in finding HP Way 2.0, and even better luck at realizing it at some part of HP.

The question on the table for years now has been what kind of company HP wants to be. It has evolved into a recognizable consumer products brand, as well as maintaining its corporate recognition as an IT leader. Merging with Compaq achieved scale for the PC business, but the underlying x86 business is decreasingly attractive, with few avenues for HP to add value.

Value still resides in the creation of core technology (which is why printing and imaging remains viable), and in application and use of technology (which is why services and applications are a good business).

In a commodity business, you drive out costs by standardizing everything, including the people, and reaching for operational scale. This tends to devalue individual contribution, but can be very large, and very predictable (or at least observable).

In a innovation-driven business, you search for new opportunities to create value, which places a premium on creativity and managed risk, tends to be much less predictable, and doesn't scale to Global 100 size enterprises. A good example of this is Apple Computer's past few years of product introductions. Good stuff, hard to predict, and as large as it is, doesn't scale to HP sizes. From a corporate management viewpoint, innovation is painfully opaque, and impossible to value accurately.

The printing and imaging business is at an interesting crossroads, since there is very difficult-to-reproduce core technology in the imaging systems, but the competitive level has reached "good enough" for most customers, so the differentiation is increasingly on the marketing and distribution side.

It's unclear that the disparate needs of the incumbent businesses can be matched with each other or with an internal home for creating new businesses (I know, I tried and have the scars to prove it...) But I suspect there's at least some room for re-examination of core ethics and corporate values that may have been eroded in the face of recent corporate upheaval and competition at HP.